Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

Inventory turnover is calculated as cost of goods sold divided by which of the following?

Total assets

Average inventory

Ending inventory

Net sales

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Verified step by step guidance

Understand the concept of inventory turnover: Inventory turnover measures how efficiently a company uses its inventory to generate sales. It is calculated by dividing the cost of goods sold (COGS) by the average inventory during a specific period.

Identify the formula for inventory turnover: The formula is \( \text{Inventory Turnover} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \). Average inventory is used because it accounts for fluctuations in inventory levels over the period.

Clarify why average inventory is used: Average inventory is calculated as \( \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \). This provides a more accurate representation of inventory levels throughout the period rather than using a single point in time.

Compare the options provided: Total assets, ending inventory, and net sales are not appropriate denominators for calculating inventory turnover. Total assets measure overall company resources, ending inventory represents a snapshot at a single point in time, and net sales measure revenue rather than inventory usage.

Conclude that the correct denominator for inventory turnover is average inventory, as it reflects the inventory levels over the period and aligns with the formula.